Duke Realty to pay $275 million for Simon's Rosemont portfolio

March 30, 2005|By Thomas A. Corfman, Tribune staff reporter.

Amid spirited bidding by several potential buyers, Duke Realty Corp. has agreed to acquire Simon Property Group Inc.'s office building portfolio in Rosemont for a hefty price of more than $275 million in what could prove to be one of the largest suburban real estate transactions of the year.

The deal includes Riverway and O'Hare International Center, which total nearly 1.4 million square feet of space. The transaction shows the continued strength of the suburban real estate investment market, which enjoyed a robust 2004.

Better known as a mall owner, Indianapolis-based Simon has considered a sale before, but never completed a deal in part because of lofty price expectations. Earlier this year, Simon put the portfolio up for sale, hiring real estate investment firm Eastdil Realty Co.

Duke, also of Indianapolis, has signed a sales contract, but is still conducting due diligence and has not yet secured the deal with an earnest money deposit, sources said.

The office buildings have high-credit tenants but have seen their vacancy rates rise in recent years. But Duke and the other bidders are betting on a revival of demand for suburban office space, particularly near O'Hare Airport.

Duke is already one of the largest commercial real estate owners in the Chicago area, with a 7.2 million-square-foot portfolio of office and industrial properties.

The Riverway assets include three office buildings at 9377 and 9399 W. Higgins Rd. and 6133 N. River Rd. The largest tenant is the Central States union health insurance and pension funds, with 211,000 square feet of space, according to real estate research firm CoStar Group. Those buildings total more than 877,000 square feet, but are about 20 percent vacant.

In addition to the Riverway office buildings, the deal includes ownership interests in the land under a Marriott Suites hotel and a fourth office building, the headquarters of MB Financial Inc., which are separately owned.

O'Hare International Center is a two-building complex, at 10255 and 10275 W. Higgins Rd., which totals more than 514,000 square feet and is 15 percent vacant. The largest tenants, which lease about a third of the complex, are manufacturer Advance Transformer Co., accounting firm Ernst & Young LLP and Abanco International LLC, a retail payment processing software firm.